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World Bank expects Jordan抯 growth to improve to 3 % in 2016

Jordan’s growth is expected to improve to 3 % in 2016, assuming no further worsening in the regional security situation and associated spillovers, according to the a newly published World Bank (WB) report.

The latest Middle East and North Africa (MENA) Economic Spring report 2016 issued late Wednesday by the WB late Wednesday said that the Kingdom's GDP growth moderated during 2015 to an estimated 2.4 %, the slowest pace in four years, magnifying already-high unemployment.

This correspond widely with the Central Bank of Jordan (CBJ) estimates as revealed recently by the bank governor Ziad Fariz, during a meeting with economic and businesspeople organized by the Association of Banks in Jordan.

The report said that security spillovers from regional conflict worsened, negatively impacting tourism, construction, investment and trade, noting that growth in a number of sectors held up well through the third quarter of 2015, including in finance and insurance services, transport, storage and communications, electricity and water, and mining and quarrying.

"Unemployment rose to 13.0 % in 2015, an increase of 1.1 % age points relative to 2014. There was a mild deflation for most of 2015 due to further falls in global oil prices, a weakened Euro, a negative output gap and easing of supply side pressures experienced in previous years (notably on housing prices, due to the large influx of refugees in 2012-13)," the report pointed out.

It added that monetary policy remained expansionary with the CBJ reducing the key policy lending rate by 125 basis points during the course of 2015 while the international reserves slightly rose to $14.2 billion (7.5 months of imports) by end-2015.

"The fiscal deficit was narrower in 2015 thanks to lower expenditures and lower transfers to the National Electric Power Company (NEPCO), which outweighed the fall in domestic revenues and grants", it said.

NEPCO resorted to borrowing from commercial banks instead of the government in 2015 providing a 7.0 % of GDP relief to the fiscal balance, without which the fiscal deficit would have widened. NEPCO’s debt continues to be government guaranteed and combined with the fiscal deficit and slowing GDP growth contributed to pushing the gross debt to GDP ratio to an estimated 93 % at end-2015," the monitor report explained.

The Economic Monitor expected that the current account deficit to have widened in 2015, mainly due to lower public transfers and a 7.1 % fall in tourism receipts, and despite a narrowing trade deficit.

It also said that the merchandise trade balance narrowed by 14 % on account of a 40.4 % fall in energy imports. These outweighed a 7.1 % contraction of direct exports (themselves buttressed by 10.9 % growth in phosphate exports) affected by land trade route closures with Syria and Iraq, traditionally Jordan’s largest export partners. Remittances are slowing, growing by only 1.5 % during 2015.

"Growth is expected to improve to 3.0 % in 2016, assuming no further worsening in the regional security situation and associated spillovers. This is driven by an expansion in mining and quarrying sector and positive base effect of tourism and construction sectors," the report said.

It also pointed out that Jordan is working towards an Extended Fund Facility (EFF) with the IMF, who anticipated to support further fiscal consolidation efforts in parallel with growth-enhancing and job-creating structural reforms.

The baseline growth forecasts assume agreement on an EFF leading to a fiscal adjustment and a lower debt-to-GDP level, adding that the balance of risks is on the downside.